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Manhattan U.S. Attorney Announces Charges Against Former Warehouse Manager Of A Prescription Drug Wholesale Distribution Company For False Prescription Drug Pedigree Scheme Involving More Than $49 Million Worth Of Diverted Prescription Drugs

Charges Against Former Warehouse Manager Of The Company, Based In Utah, Are A Result Of Continuing Investigation Related To The July 2012 48-Person Takedown Of Half-a-Billion-Dollar Medicaid Fraud Prescription Drug Diversion Scheme

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal complaint (the “Complaint”) against STEPHEN COX, the former warehouse manager of a prescription drug wholesale distribution company (the “Wholesaler”), for his alleged participation in a scheme to falsify pedigrees for prescription drugs sold to pharmacies all over the country, including at least six pharmacies in New York City. The prescription drugs were diverted from illegal sources and made to appear, through pedigrees falsely documenting their transaction histories, as though they were obtained legitimately from authorized distributors through licensed wholesalers. The defendant allegedly, through the Wholesaler, based in St. George, Utah, conspired with others to sell to pharmacies more than $49 million worth of illegally obtained prescription drugs through several wholesale distribution companies controlled by co-conspirators, some of whom have pled guilty pursuant to cooperation agreements with the Government. COX surrendered to the FBI this morning in New York City in connection with the charges announced today and was presented in Manhattan federal court before U.S. Magistrate Judge Ronald L. Ellis this afternoon.

The Complaint is a result of the continuing investigation into a scheme that defrauded Medicaid out of more than $500 million through the diversion of prescription drugs. On July 17, 2012, 48 defendants were charged in connection with United States v. Viera, et al., 11 Cr. 1072 (DLC), all but five of whom have been arrested and have pled guilty.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, in his position as a warehouse manager for a prescription drug wholesaler, defendant Stephen Cox played an integral role in a multimillion-dollar prescription drug diversion scheme by helping his employer to falsify the pedigrees of second-hand prescription drugs and dispense them to pharmacies across the country. People in need of medicine walk into a pharmacy to untainted, safe prescription drugs; they should not walk out with black market pills, a risk the alleged conduct makes very real.”

FBI Assistant Director-in-Charge George Venizelos said: “Every operation has a conductor whose job it is to ensure all players work together and all parts are delivered on time. As alleged, Stephen Cox acted as a conductor in this massive Medicaid fraud, working with his co-conspirators to manage the shipment and delivery of illegally obtained prescription drugs to the tune of more than $49 million. By providing advice on how to falsify required FDA documents, he continued to defraud the Medicaid system, which is funded by tax dollars to provide healthcare to lower income individuals, and put at risk those unwitting customers who would eventually purchase these secondhand pills. The FBI remains committed to working with our law enforcement partners on our Health Care Fraud Task Force to ensure the public’s safety and investigate those who seek to defraud government program.”

The following allegations are based on the Complaint and other publicly filed documents in the Viera case:

For years, a large network of individuals operated a nation-wide scheme to illegally launder and resell second-hand prescription drugs (typically HIV/AIDs drugs) purchased from Medicaid beneficiaries on street corners and out of bodegas in and around New York City. The drugs had been dispensed in manufacturers’ bottles with pharmacy patient labels affixed to them. Once they purchased the second-hand drugs, the conspirators, who often held the drugs in uncontrolled and unsanitary conditions, used solvents to dissolve the adhesive on the patient labels to remove them and make the bottles look like new bottles, straight from the manufacturer. Once enough bottles were collected, the New York-based conspirators sold them, through Florida-based groups, to individuals in Texas, who operated several corrupt wholesale companies, such as those identified in the Complaint.

The Wholesaler, through COX and others, purchased more than $49 million worth of prescription drugs that they knew had been purchased illegally by the corrupt wholesale companies run from Texas. COX and others then sold them to unsuspecting pharmacies all over the United States, including to some pharmacies in New York City, which, in turn, sold and dispensed the second-hand drugs to unsuspecting patients who were unaware that their medications had previously been dispensed and may have had diminished efficacy or contained contaminants.

Federal law requires prescription drug wholesalers to create and maintain transaction histories, or “pedigrees,” that correctly document each transaction involving prescription drugs. COX and an uncharged co-conspirator who owned the Wholesaler (“CC-1”) instructed co-conspirators affiliated with the corrupt wholesale companies how to falsify these pedigrees to create paperwork that concealed from FDA inspectors and pharmacies purchasing the drugs that the drugs were illegally obtained and previously had been dispensed. Backed by these false pedigrees, the Wholesaler sold illegally obtained prescription drugs to pharmacies all over the country, including to the six in Manhattan and the Bronx referred to in the Complaint.

From at least 2009 through November 4, 2011, STEPHEN COX, the defendant, worked for CC-1 at the Wholesaler as its warehouse manager. At the Wholesaler, COX received by fax from co-conspirators lists of prescription drugs available from unlicensed sources. COX communicated with co-conspirators concerning orders and shipments of prescription drugs from unlicensed sources, and passed along instructions to co-conspirators concerning how to construct false pedigrees. At the Wholesaler and at two subsequent corrupt wholesale distribution companies, COX received and inspected shipments of prescription drugs from unlicensed sources and facilitated the sale of those drugs to pharmacies all around the country, ultimately to be dispensed to unsuspecting patients. COX is the first individual associated with a wholesale distribution company that sold directly to pharmacies to be charged as part of this ongoing investigation.

COX, 34, of Sugarland, Texas, is charged with one count of conspiracy to defraud the United States, falsify pedigrees, and commit misbranding offenses, which carries a maximum sentence of five years in prison. He is also charged with six counts of pedigree falsification relating to prescription drugs the Wholesaler sold to six pharmacies in Manhattan and the Bronx, each of which carries a maximum sentence of three years in prison.

Mr. Bharara praised the efforts of the FBI’s Health Care Fraud Task Force. The New York FBI Health Care Fraud Task Force was formed in 2007 in an effort to combat health care fraud in the greater New York City area. The task force is comprised of agents, officers, and investigators from the FBI, New York City Police Department, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management Inspector General, U.S. Food and Drug Administration, New York State Attorney General’s Office, New York State Office of Medicaid Inspector General, New York State Health and Hospitals Inspector General, and the National Insurance Crime Bureau.

The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Jason A. Masimore, Russell Capone, and Edward B. Diskant are in charge of the prosecution. Assistant U.S. Attorney Alexander Wilson of the Office’s Asset Forfeiture Unit is responsible for the forfeiture of assets.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.